Advanced Search
MyIDEAS: Login to save this article or follow this journal

Testing forward exchange rate unbiasedness efficiently: a semiparametric approach

Contents:

Author Info

Abstract

We apply semiparametric efficient estimation procedures for a seemingly unrelated regression model where the multivariate error density is elliptically symmetric to study the efficiency of the foreign exchange market. We consider both cointegrating regressions and standard stationary regressions. The elliptical symmetry assumption allows us to avoid the curse of dimensionality problem that typically arises in multivariate semiparametric estimation procedures, because the multivariate elliptically symmetric density function can be written as a function of a scalar transformation of the observed multivariate data. We test the unbiasedness hypothesis on both weekly and daily exchange rate data and strongly reject unbiasedness at the weekly horizon, but fail to reject the unbiasedness hypothesis on the daily data. Estimates of the semiparametric procedure in some cases differ substantially from traditional OLS estimates.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cema.edu.ar/publicaciones/download/volumen7/hodgson.pdf
Download Restriction: no

Bibliographic Info

Article provided by Universidad del CEMA in its journal Journal of Applied Economics.

Volume (Year): VII (2004)
Issue (Month): (November)
Pages: 325-353

as in new window
Handle: RePEc:cem:jaecon:v:7:y:2004:n:2:p:325-353

Contact details of provider:
Postal: Av. Córdoba 374, (C1054AAP) Capital Federal
Phone: (5411) 6314-3000
Fax: (5411) 4314-1654
Email:
Web page: http://www.cema.edu.ar/publicaciones/jae.html
More information through EDIRC

Related research

Keywords: forward exchange market; time series econometrics; nonparametric statistics;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Douglas J Hodgson & Oliver Linton & Keith Vorkink, 2000. "Testing the capital asset pricing model efficiently under elliptical symmetry : a semiparametric approach," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 2197, London School of Economics and Political Science, LSE Library.
  2. repec:cup:etheor:v:11:y:1995:i:5:p:912-51 is not listed on IDEAS
  3. Hakkio, Craig S, 1981. "Expectations and the Forward Exchange Rate," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(3), pages 663-78, October.
  4. Hodgson, Douglas J., 1998. "Adaptive Estimation Of Error Correction Models," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 14(01), pages 44-69, February.
  5. Phillips, Peter C.B., 1995. "Robust Nonstationary Regression," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 11(05), pages 912-951, October.
  6. Hardle, W., 1992. "Applied Nonparametric Methods," Discussion Paper, Tilburg University, Center for Economic Research 1992-6, Tilburg University, Center for Economic Research.
  7. Levine, Ross, 1989. "The pricing of forward exchange rates," Journal of International Money and Finance, Elsevier, Elsevier, vol. 8(2), pages 163-179, June.
  8. Fama, Eugene F., 1984. "Forward and spot exchange rates," Journal of Monetary Economics, Elsevier, Elsevier, vol. 14(3), pages 319-338, November.
  9. Charles Engel, 1995. "The Forward Discount Anomaly and the Risk Premium: A Survey of Recent Evidence," NBER Working Papers 5312, National Bureau of Economic Research, Inc.
  10. Baillie, R.T. & Bollerslev, T., 1993. "The Long Memory of the Foreward Premium," Papers, Michigan State - Econometrics and Economic Theory 9203, Michigan State - Econometrics and Economic Theory.
  11. Bilson, John F O, 1981. "The "Speculative Efficiency" Hypothesis," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 54(3), pages 435-51, July.
  12. Oliver Linton, 1993. "Second Order Approximation in the Partially Linear Regression Model," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1065, Cowles Foundation for Research in Economics, Yale University.
  13. Alex Maynard & Peter C. B. Phillips, 2001. "Rethinking an old empirical puzzle: econometric evidence on the forward discount anomaly," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 16(6), pages 671-708.
  14. Levine, Ross, 1991. "An empirical inquiry into the nature of the forward exchange rate bias," Journal of International Economics, Elsevier, Elsevier, vol. 30(3-4), pages 359-369, May.
  15. Baillie, Richard T & Lippens, Robert E & McMahon, Patrick C, 1983. "Testing Rational Expectations and Efficiency in the Foreign Exchange Market," Econometrica, Econometric Society, Econometric Society, vol. 51(3), pages 553-63, May.
  16. Martin D.D. Evans & Karen K. Lewis, 1993. "Do Long-Term Swings in the Dollar Affect Estimates of the Risk Premia?," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 93-12, New York University, Leonard N. Stern School of Business, Department of Economics.
  17. Hodgson, Douglas J, 1999. "Adaptive Estimation of Cointegrated Models: Simulation Evidence and an Application to the Forward Exchange Market," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 14(6), pages 627-50, Nov.-Dec..
  18. Baillie, Richard T & Bollerslev, Tim, 1989. " Common Stochastic Trends in a System of Exchange Rates," Journal of Finance, American Finance Association, American Finance Association, vol. 44(1), pages 167-81, March.
  19. White, Halbert, 1982. "Maximum Likelihood Estimation of Misspecified Models," Econometrica, Econometric Society, Econometric Society, vol. 50(1), pages 1-25, January.
  20. Steigerwald, Douglas G., 1992. "Adaptive estimation in time series regression models," Journal of Econometrics, Elsevier, Elsevier, vol. 54(1-3), pages 251-275.
  21. Hodgson, D.J., 1995. "Adaptive Estimation of Cointegrating Regressions with ARMA Errors," RCER Working Papers, University of Rochester - Center for Economic Research (RCER) 408, University of Rochester - Center for Economic Research (RCER).
  22. Cornell, Bradford, 1989. "The impact of data errors on measurement of the foreign exchange risk premium," Journal of International Money and Finance, Elsevier, Elsevier, vol. 8(1), pages 147-157, March.
  23. Jeganathan, P., 1995. "Some Aspects of Asymptotic Theory with Applications to Time Series Models," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 11(05), pages 818-887, October.
  24. repec:cup:etheor:v:11:y:1995:i:5:p:818-87 is not listed on IDEAS
  25. Oliver LINTON, . "Applied nonparametric methods," Statistic und Oekonometrie, Humboldt Universitaet Berlin 9312, Humboldt Universitaet Berlin.
  26. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(5), pages 829-53, October.
  27. Hakkio, Craig S. & Rush, Mark, 1989. "Market efficiency and cointegration: an application to the sterling and deutschemark exchange markets," Journal of International Money and Finance, Elsevier, Elsevier, vol. 8(1), pages 75-88, March.
  28. Bailey, Ralph W & Baillie, Richard T & McMahon, Patrick C, 1984. "Interpreting Econometric Evidence on Efficiency in the Foreign Exchange Market," Oxford Economic Papers, Oxford University Press, Oxford University Press, vol. 36(1), pages 67-85, March.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Dhekra Azouzi & Rohit Vishal Kumar & Chaker Aloui, 2011. "Forward Rate Unbiasedness Hypothesis in the Tunisian Exchange Rate Market," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Scien, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 1(2), pages 17-44, July.
  2. Enrique Sentana & Dante Amegual, 2008. "A Comparison Of Mean-Variance Efficiency Tests," Working Papers, CEMFI wp2008_0806, CEMFI.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cem:jaecon:v:7:y:2004:n:2:p:325-353. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Valeria Dowding).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.